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Past performance framing and investors’ belief updating: Is seeing long-term returns always associated with smaller belief updates?

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  • Gerhard, Patrick
  • Hoffmann, Arvid O.I.
  • Post, Thomas

Abstract

Prior research shows that investors with smaller belief updates trade less actively, which positively affects their return performance. We examine the effect of different default frames of presenting past return information on investors’ belief updating. In particular, we analyze whether presenting longer information horizons as a default is associated with smaller belief updates. In lab and online experiments, we expose subjects to different past return information defaults and measure updates in their beliefs. Different from previous research, our subjects can easily opt out of the default to obtain additional information. We find that presenting long-term return information is not effective in reducing belief updates on average. Whereas belief updates are reduced for subjects who remain in their default, for those who opt out, we observe the opposite.

Suggested Citation

  • Gerhard, Patrick & Hoffmann, Arvid O.I. & Post, Thomas, 2017. "Past performance framing and investors’ belief updating: Is seeing long-term returns always associated with smaller belief updates?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 15(C), pages 38-51.
  • Handle: RePEc:eee:beexfi:v:15:y:2017:i:c:p:38-51
    DOI: 10.1016/j.jbef.2017.07.007
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    Cited by:

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    2. Borsboom, Charlotte & Zeisberger, Stefan, 2020. "What makes an investment risky? An analysis of price path characteristics," Journal of Economic Behavior & Organization, Elsevier, vol. 169(C), pages 92-125.

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    More about this item

    Keywords

    Default options; Framing; Household finance; Investor beliefs; Belief updating;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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